This article is authored by Pankhuri Pankaj, a 2nd-year student pursuing her BA-LLB degree from Vivekananda Institute of Professional Studies. She is currently interning with Lexpeeps. This article summarises certain key provisions of “attempt to suicide and abetment to suicide” under the Indian Penal Code and is qualified in its entirety by reference to the Indian Penal Code, 1860.
A partner in a firm holds the highest position and is a person responsible for the running of the organization owning a co-ownership with the other partner(s) with the goal to earn the profit. All partners in a firm are entitled to form an agreement with regard to their mutual rights and duties, keeping in consultation the certain duties mentioned in the Indian Partnership Act, 1932 which cannot be altered by entering into an agreement to the contrary and this principle has been given statutory recognition under Section 11 of the Indian Partnership Act, 1932. This principle is commonly referred to as one of the two fundamental principles which help govern the relation of one partner to the others.
The second principle which is recognised by Section 9 of the Indian Partnership Act, 1932 provides that the relation of one partner to the other is of the utmost good faith. It also suggests that every contract entered by one partner in the name of the firm will be binding on other partners too. It says that every partner is an agent of each other and thus it concludes that the relation of partners to one another is based on mutual trust. This principle can be said to be of fundamental nature.
Rights of a Partner in a Firm
In a partnership firm law confers the following rights on a partner:
1. Right To Take Part In The Conduct Of The Business
This right has been conferred on the partners through Section 12(a) of the Indian Partnership Act, 1932. It provides that every partner has the right to take part in the conduct of the business of the firm. This firm does have the right to allow only a few partners to actively participate in the functioning of the business by curtailing this right by the provision of the agreement.
It is necessary that this right should be used by the partners for the purpose of promoting the business of the firm and not for damaging the firm’s business and a similar contention was held in the case of Suresh Kumar Sanghi v. Amrit Kumar Sanghi (AIR 1982 Del 131) where the Delhi High Court imposed an injunction against the partner concluding that his act was to damage the business of the firm.
2. Right To Access And Inspect Books
According to Section 12(d) of the IPA, 1932 the partners in a firm have the right to access, inspect and copy the account books of the firm and this right can be accessed by the partner in the first person or through his/her agent but the information gained by either is strictly prohibited from being used against the firm.
In case a partner denies granting access to the books of the firm a reasonable ground for the same needs to be provided. If the reason given by the person is found to be trivial, he will have to grant access to the books even if he is reluctant.
3. Right To Be Consulted
Under Section 12(c) of the Indian Partnership Act, 1932 a partner’s right to be consulted has been granted. This right provides that in the matters of resolving disputes related to the ordinary course of business a majority between the partners is to be seen. Every partner is given the right to express an opinion before the matter is decided.
In case the dispute is related to the Fundamental matters of business of the firm, it is necessary to get the consent of every partner in the firm. This provision can be further understood by taking the example of the case when a minor is to be included as a beneficiary in the firm.
4. Right To Share Profits
In a partnership firm, every partner has been granted the right to share profits equally in the firm and has been prescribed under Section 13(b), Indian Partnership Act, 1932. This right to share profits is not to be affected by the fact that the partners may have contributed unequally or possess different skills and the same contention was held in the case of Mansha Ram v. Tej Bhan (AIR 1958 P&H 5) where the Punjab and Haryana High Court held that the partners were entitled to share equal profits in a firm irrespective of the fact whether they had been paid separately and had done unequal work.
5. Right To Interest
Under Section 13(c) of the Indian Partnership Act, 1932 it has been stated that generally a partner is not entitled to make a claim on the capital of the firm but if there exists an express agreement between the partners which allows interest on the capitals then such an interest has to be paid out of the profits of the firm. A partner is deemed to be an adventurer rather than a creditor and therefore, interest is not to be provided to the partner on capital except when there is an agreement or usage to that effect.
In case of interest in advance, under Section 13(d) it is stated that a partner is rightfully entitled to an interest of maximum six percent per annum for the advances made by him to the firm beyond the capital he agreed to subscribe to.
It is important to note that the interest in the capital of a partner ceases after the dissolution of a firm but the interest on advances would continue to exist until it is paid completely.
6. Right To Be Indemnified
Right to indemnity has been provided to the partners under Section 13(c) of the Indian Partnership Act, 1932 under two circumstances, which are:
- A partner is granted the right to be indemnified to recover any expenses he may have incurred in the ordinary and proper conduct of the business; or
- In the cases wherein order to protect the firm from the loss, the partner incurred expenses in any emergency. Here, it is necessary that the partner acted in a reasonable manner.
This right is not lost with the dissolution of the firm and continues to exist. Mere settlement of accounts is also not important to indemnify the partner.
The reason behind this right is pure fairness. It is believed that the burden of expenses of the partners should not be borne by a single partner.
7. Right To Remuneration
Under Section 13(a) of the Indian Partnership Act, 1932 it has been provided that in a firm no partner is entitled to claim remuneration for the act of taking part in the conduct of the business. In the same breath, it is provided that remuneration can be provided to certain partners along with the share in the profits if that has entered into an agreement to that effector when such remuneration is payable under the continued usage of the firm.
Along with these rights, the partners may compile some mutual rights which generally depends upon the provisions of the agreement.
Duties of a Partner in a Firm
In addition to the multiple rights enjoyed by a partner in a firm, certain duties have to be performed by them to hold entitlement over those rights too. These duties of partners emerge directly from the second principle discussed above, i.e. the relation of the partners to one another of utmost good faith.
1. Duty To Act In Good Faith
Section 9 of the Indian Partnership Act, 1932 states that it is the duty of every partner in a firm to act in good faith of the firm and to act for the greatest common advantage of the firm. It provides that the partners should work honestly to secure the greatest profits for the firm and no profit should be gained by the partner at the expense of the firm.
In the case of Bentley v. Craven ((1853) 18 Beav 75) where the partner who was entitled with a responsibility gained secret profits wrongfully, the court held that the partners are not entitled to make secret profits and therefore, the firm was held entitled to the profits earned by the partner.
It is important to note that this duty does not cease to exist even after the partnership ceases to exist. The partners in the firm owe the duty to legal representatives of the partner as well as the former partner.
2. Duty Not To Compete
Under Section Section 16(b) of the Indian Partnership Act, 1932 a partner should be held accountable for all the profits that he gains if the partner makes them by engaging in business which is similar to or competing with the firm.
To understand this duty better the case of Pullin Bihari Roy v. Mahendra Chandra Ghosal (AIR 1921 Cal 722) can be taken into account where the accused was held liable to account to his co-partners for the profits earned by him.
However, it is important to note that this duty does not restrict the partner from carrying out any business outside the scope of the business of the firm.
This duty can be altered by the partners through partnership deed and partners may enter into an agreement which allows a partner to carry the business competing with the business of the firm or can restrict the partners too from carrying out any business other than that of the firm and such an agreement will be held legally valid owing to the provisions provided under Section 11 of the Act. In case a person breaches such an agreement and carries out a business not competing to that of the firm then, such a partner will not be held liable for the profits but the other partners will be given the right to apply for the dissolution of the firm.
3. Duty To Be Diligent
Under Section 12(b) of the Partnership Act, it has been provided that a partner in a firm is bound to diligently attend to his duties and under Section 13(f) of the act, it has been provided that the partner must indemnify the firm in case of any losses incurred by the firm due to the wilful neglect of the partner.
It is important to note that the partner cannot be held liable for simple errors of judgement or for acts done in good faith but for wilful negligent behaviour only.
This duty can be better understood by taking the example of the case of Cragg v. Ford (62 ER 889).
Only the firm or the partners on behalf of the firm can bring an action for indemnity under this head and a partner cannot bring an action for indemnity in his personal capacity.
4. Duty To Render True Accounts
In case of things related to the firm or things that affect the firm, the partners are bound to disclose and provide full information about it to any partner or his legal representative and the same has been laid down under Section 9 of the Indian Partnership Act, 1932. To understand this duty in general terms, the partners are prohibited from concealing things from other co-partners in relation to the business of the firm.
In the case of Law v. Law ((1905) 1 Ch 140 (CA)), the court held that in case a partner possesses some extra information then he is legally bound to deliver the same to the co-partners in the firm. If the partner enters into a contract with other co-partners without furnishing them the material details which are known to him but not his co-partners then such a contract is voidable at the option of the co-partners.
5. Duty To Indemnify For Fraud
Section 10 of the Indian Partnership Act, 1932 deals with the duty to indemnify for fraud and it states that the partner shall be liable to indemnify his co-partners in case a loss is caused to the business because of his actions.
The purpose of this section to inculcate accountability and induce partners to deal fairly and honestly with the customers.
It is important to note that the liability for fraud cannot be excluded merely by entering into an agreement to the contrary because entering into such an agreement would oppose the public policy.
6. Duty Not To Earn Personal Profits
Under Section 16 of the Indian Partnership Act, 1932, it has been provided that a person should account for the property in case he uses the property of the firm to earn profits out of it. This duty is deemed to arise because of the Fiduciary relationship between the partners.
To understand this duty better the example of a partner entering into a business which happens to compete with the business of the firm can be taken. Here, it is held that the partner should account for the profits earned from any such business.
It is important to note that in case a competing business is carried out after the dissolution of the partnership, reasonable restrictions can be put by the firm for carrying out the competing business by the ex-partner.
This duty is not a compulsory duty and can be avoided by a partner by entering into an agreement to the contrary.
7. Duty To Properly Use The Property Of The Firm
It has been laid down under Section 15 of the Indian Partnership Act, 1932, that the property of the firm should be used by the firm only for the purposes of the business of the firm. A partner is not entitled to use this property for his personal use and if he does the same then he will be held accountable to all the co-partners and can be held liable for any loss incurred because of any such use as well.
It is important to note that this duty can be avoided by entering into an agreement to the contrary.
It is important to note that the mutual rights and duties of the partners do not get affected in case there is any change in the constitution of the firm or if the partnership continues after the expiry of the term or undertaking for which it was constituted.
In conclusion, partners in a partnership are entitled to form an agreement and decide mutual right and duties along with the rights and duties legally provided. It is a fundamental principle in a partnership that a partner must act in utmost good faith and should always work for the greater good of the firm and with the common goal to gain maximum profits for the firm. In case no explicit agreement between the partners exists, these rights and duties can be easily abrogated by entering into an agreement to the contrary.
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